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home >> global news >> politics >> Bush Policy Wonks Will Move Markets – and the Economy

Bush Policy Wonks Will Move Markets – and the Economy

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Dubya's Brain Trust

No one expects Dubya to put on his thinking cap, network with policy wonks and forge a set of priorities for his new administration that will rock our collective world. That was Bill Clinton's modus operandi.

Ideas for Bush policies will be coming from a handful of big think tanks in Washington. As in the Reagan era, the most important is the Heritage Foundation, which since 1980 has published an elaborate Mandate for Leadership book every four years that sets forth the conservative agenda. Now the project is even larger and laid out on the  group's Web site .

Heritage's sister think tank, the American Enterprise Institute , is really more like an assisted living facility for pro-business members of former administrations than a hotbed of new-wave conservative innovation. AEI poses as conservative, but it is  dominated by old cold war neoconservative theorists, many of them former left-wingers who saw the light and went over to the other side.

Then there's the Libertarian Cato Institute, which is too far out to be closely connected with any administration.

All these groups host non-stop seminars and discussion groups to hash out policy, and Heritage has what amounts to a lobby staff that works with members of Congress in developing policy. Heritage also has encouraged the founding of other foundations around the country to work at the state level, developing policy and pushing forward right wing politics.

Of these three, Heritage is most important, having developed the conservative line on Social Security, welfare reform, health insurance, housing, welfare and the Internet. Even more important, Heritage has worked hard over the last four years to pull together ideologically warring Christian fundamentalists with Libertarian economists.

Cato, which has been growing rapidly and has a very high cool quotient, is home base for Libertarian economics, the backbone of the turn-of-the-century conservative movement.

Key areas these conservative think tanks have honed include:

Taxes

Bush's grandiose $1.3 trillion proposed tax-cut scheme might have seemed unrealistic during the campaign and initially angered party leaders, but may prove to be a fast-starter, providing Bush with a safety net against the projected "hard landing," a.k.a. recession, next spring.

House Republican leaders are talking with Dick Cheney, Bush's point man on Capitol Hill, where he'll serve as the tie breaking vice presidential vote in the Senate. Cheney has a wealth of tax strategy experience from his days in the House.

Congressional Republicans want the new President to go slow, breaking up his big tax break into bite-sized morsels, getting rid of the marriage penalty here, chopping estate taxes there.

Conservative Congressman Phil Crane, now number two on House Ways and Means and fighting to become chairman, is big on tax cuts: "President-elect Bush's tax cuts are in many, many ways the perfect response to a slowdown or recession," he told The Washington        Times . Committee Spokesman Trent Duffy added: "Clearly economic  conditions will add momentum to tax relief. Economics 101 teaches us that when the economy starts slowing, one way to sustain growth is to cut taxes." Fed Chairman Alan Greenspan might well buy into the tax cut as an anti-recession maneuver.

Whatever happens with a big tax cut, House managers will try dodging Democratic opposition by pushing cuts in small bundles, before moving on to the main agenda. Over the long haul        conservatives, as always, hope to replace the income tax with Jack Kemp's flat tax.

Economic impact: Tax cuts could over-stimulate the economy in 2002 or 2003, if they come in the wake of Greenspan's expected further rate cuts, which take about a year to 18        months to impact the broader economy. In the meantime, the cuts would  certainly create a "wealth effect” of their own, jump-starting stalled markets for luxury goods and services. Winners might include high-end retailers such as Neiman-Marcus, manufacturers of luxury automobiles, boats and planes and developers of McMansions. Over the long term,        eliminating the estate tax would provide a mammoth stimulus to the economy, as Baby Boomers are set to inherit trillions of dollars during the next decade. All the extra-inherited dollars would, of course, go into financial markets, so investment bankers would be very, very happy.

Defense spending

There's no question Bush will launch what conservative planners call "a military recovery program" by injecting a quick $10 billion into the defense budget, then $25 billion more in 2002. With the added money, the U.S. military can mount a real "peace through strength"        program calculated to win one major regional conflict and one smaller conflict simultaneously. Resurrection of missile defense, with some variation of the old Star Wars scheme launched during the Reagan era, is a virtual certainty.

Military spending goes hand in hand with foreign policy as it relates to energy. If we increase our take of oil from the Middle East, we are almost inevitably sucked into supporting a        bigger police force than is currently deployed throughout the Gulf area to  keep tabs on Iraq. Conceivably that policing operation could end up extending all the way up through central Asia to encompass the Caspian Sea. In Asia, where China and Taiwan are at each other's throats, expansion of military force is even more important.

General Shelton, Chairman of the Joint Chiefs of Staff, said in a speech before the National Press Club last month that our policy towards China is crucial to prevent that nation from becoming another Soviet Union. That means pumping more military dollars into Taiwan.

More foreboding, since the Asian countries now busily employed making products for the West are often dependent on imported energy, U.S. military assets must be deployed to keep the sea lanes that provide the Asian energy supply line open.

If the United States gets lucky, it can persuade China and Russia to join in getting the United Nations to protect the crucial Malacca Straits. If not, then the United States will have to do so on its own. Protecting the Malacca Straits is bound to become a major foreign policy objective, just as protecting South Vietnam was 30 years ago.

However, if Bush pursues his National Missile Defense initiative seriously, China will freak out. NMD would neutralize China's small strategic nuclear arsenal, and the Chinese would most likely respond with a major arms build-up that would trigger an Asian arms race, scuttle        cooperation between China and the United States, and create vast geostrategic instabilities worldwide. The great irony of the NMD initiative, designed to protect America against long-range missile attack, is that a recent CIA report warns that intercontinental ballistic missiles are a very low-priority threat in today's world, where cruise missiles, short-range missiles and suitcase bombs are proliferating dangerously.

Economic impact: A defense build-up would benefit defense contractors, obviously, but if flexing American military muscle worldwide triggers blowback in Asia or the Middle East, we could see a repeat of the Gulf War recession, triggered by oil supply uncertainty and        Asian turbulence that sends that region firmly into financial meltdown.

 

Social Security

Bush will push for partial privatization, providing a channel for people to put a portion of their payroll taxes into personal investment accounts, along the lines of pension systems in more than a dozen countries, including Great Britain and Sweden. While Gore opposes privatization, the Clinton administration had moved towards accepting the idea that Social Security funds should be invested in the stock and bond market. The differences between Clinton-Gore and Bush is one of degree more than anything else. The unions are big opponents of privatization, but many union members already have 401(k)s, arranged with the acquiescence of the unions. So their opposition may turn out to be superficial.

Economic impact: Once again, big winners will be the investment banks of Wall Street.

Healthcare

The Heritage Foundation plays the key role here with VP Stuart Butler, a Brit and ex-Thatcherite, pushing for a health care reform based on the expansion of the existing Federal Employees Health Benefits Program, which covers about 9 million federal workers, retirees and their dependents, including the members of Congress. This plan allows participants to pick and choose among different private insurance schemes. Butler proposes to reform Medicare along the same lines. Expansion of the FEHP scheme is the heart of proposals made in 1999 by the National Bipartisan Commission on the Future of Medicare, and crafted into        legislation by Democratic Senator John Breaux of Louisiana and Republican         Representative Bill Thomas of California.

"For beneficiaries it offers reasonably-priced drug coverage, a reduced need for supplemental coverage, and the promise of lower premiums. For the government (and by extension, the taxpayer) it would aid the budget and reduce the need for federal micromanagement. For health plans, it offers greater stability and a more businesslike atmosphere, with fairer, but tougher, competition. For hospitals and health providers, it would bring a less heavy-handed approach to cost control than has been used in the past."

"The Breaux/Thomas proposal would change the Medicare entitlement from the  government paying all of Part A and 75% of Part B to the government paying 88% of a combined Medicare. Each year, beneficiaries would have incentives to choose efficient plans. On average, beneficiaries would pay 12% of the premium for a standard plan."

As for the much discussed drug coverage for seniors, the Breaux/Thomas legislation would spend an estimated $61 billion over 10 years on drug coverage and cost subsidies for the poor.

In the short run, this new coverage would be provided through the Medicaid program, fully paid for by the federal government.

When the premium support system gets implemented, the coverage would be provided through special subsidies for high option plans in Medicare.

The new drug subsidies would likely increase the participation in subsidies available under current law (for premiums and cost-sharing) and the $61 billion estimate includes this increased federal spending." In addition, Breaux favors "some kind of subsidy for all beneficiaries."

In short, the reform places Medicare square in the middle of the private market, and, in the opinion of its proponents, ought to stabilize -- if not actually provide a base subsidy -- for the existing health insurance firms.

In complimenting Breaux in the visit to his ranch last week, Bush said he and Breaux shared the same attitude towards government. "He views this as a unique opportunity in American        history for Republicans and Democrats to focus on health care," the  president-elect said.

Economic impact: The entire American health insurance industry is dangerously close to meltdown, as OnMoney.com has detailed in America's  Healthcare Crisis . So subsidies for ailing health insurers would be welcome, although there is no reason to believe they will solve the  industry's long-term problems. Drug manufacturers would of course benefit  from any scheme to push more drugs to elderly Americans, and with anti-regulatory folk in charge in the White House, the pharmaceutical makers should enjoy a double-dip at Dubya's fountain of wealth.

Energy

Neglected during Clinton-Gore, oil and natural gas policy is suddenly all-important because of damaging 50% price hikes for both oil and gas. During the campaign Bush discussed efforts to expand exploration on federal lands in Alaska (the wildlife refuge), on the West Coast        outercontinental shelf and in the Gulf of Mexico. That means putting  environmental regulations on hold. Although the United States already imports vast amounts of its energy supplies, from the Middle East and elsewhere, we're likely to be buying more, not less, over the short term. That means stepping up support for exploring in such places as the Caspian Sea.

Bush has nominated outgoing Senator Spencer Abraham (R-Mich.) for Energy Secretary. Abraham lost his recent bid for reelection, like John Ashcroft. While in Congress, Abraham tried to abolish the Energy Department, fought to block higher fuel-economy standards for SUVs, wanted to lower the federal gasoline tax and open up the Arctic Refuge to drilling. He received a zero percent rating from the League of Conservation Voters in the last Congressional session.

This choice guarantees that Abraham -- and Bush's energy policy -- will attract massive opposition, and could be a nonstarter.

Economic impact: Investors will be drawn to pour money into oil or natural gas companies, but wait. Natural gas, like the oil industry, is held hostage by the Nymex. It is futures markets that determine pricing of these vital commodities. That's why service companies like Schlumberger may be a better bet.

James Ridgeway is Washington correspondent for the Village Voice and the author of 16 books, including Blood in the Face , a history of the far racist movement in the United  States, and RedLight, an investigation of the sex industry. He also is a director (with Kevin Rafferty and Anne Bohlen) of the film Blood in the        Face, and director (with Kevin Rafferty) of Feed, a documentary on the 1992 New Hampshire primary.

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